London: The City That Isn't Sleeping
It's a comeback that few had thought possible. In 1992, the Irish Republican Army set off a huge bomb in the City of London, killing three people and rocking confidence in the British capital's mile-square financial center. Yet today, some see opportunity in the devastated site. On Sept. 10, property and leisure conglomerate Trafalgar House Property Ltd. unveiled plans to erect Europe's tallest building right in the City.
The 92-story, glass-sheathed Millennium Tower could encounter stiff opposition. English Heritage, the agency charged with protecting historic sites, has reservations about its 1,265-foot height and demolition of the remnants of a historic building. But if the tower is built as planned, it will surpass the new Commerzbank headquarters, now under construction in Frankfurt, by 260 feet. That would send a signal, its developers say, to Frankfurt--London's principal competitor in European finance--that the City is still No.1.
FOREIGN DEMAND. The grandiose proj-ect also shows that London's property market is finally recovering after a five-year slump. Driving the turnaround are financial institutions that believe London will remain Europe's financial hub well into the next century. Rents for prime commercial City space have risen roughly 30% from the 1993 trough. Construction will even recommence soon at Canary Wharf, the long-troubled East End development designed as a rival to the City. "For the first time since I have been at Canary Wharf, the market outlook is strengthening," says Charles B. Young, deputy chairman of Canary Wharf Ltd.
Much of the demand for space is coming from non-British institutions. Some, such as Deutsche Bank and the Netherlands' ABN AMRO, have been shifting trading functions from their home cities to London, which is cheaper and less regulated. Others, such as Citibank, want to consolidate their scattered operations in one premium building that has room for 40,000-square-foot trading floors--a necessity for today's financial heavyweights.
In the City of London, such megafacilities aren't readily available. Commercial vacancy rates have fallen below 10%, the point where experts say price pressure begins to kick in. Yet so far, rents are rising only gradually, so developers aren't worried about a repeat of the speculative boom that caused massive overbuilding in the late 1980s and led to a collapse in the early 1990s.
Young scored a major coup for Canary Wharf recently when he helped persuade Citibank to move most of its British operations into a new 550,000-square-foot building. This construction will be the first step of Phase II--the 8 million additional square feet the Wharf hopes to build over the next 10 to 15 years. It is not clear how sweet a deal Young and Reichmann had to offer Citi, whose vote of confidence they hope will help reel in other big banks. Citi will own the building--an arrangement that Canary Wharf normally doesn't care for. But Young says that he is in serious discussions on Phase II with two other big financial institutions.
With important tenants such as HSBC Holdings, Merrill Lynch, and Liffe, London's futures and options exchange, said to be prowling for space, competition between the City and the Wharf could be heating up again. Canary Wharf has advantages. Its rents are around $35 per square foot annually, compared with $65 for premium space in the City. And when the extension of the Jubilee underground line in 1998 cuts travel time from central London in half, to 15 or 20 minutes, the City's location will be less significant.
Already, Morgan Stanley Group (Europe) PLC has its headquarters at Canary Wharf, and BZW Ltd. is moving its global headquarters there. The Corporation of London, which is largely responsible for governing the City, is aware it risks losing tenants to Canary Wharf and locations outside Britain if it fails to accommodate their needs. So it has in recent years dramatically eased zoning restrictions and lured such major institutions as ABN AMRO and Deutsche Morgan Grenfell to build on City turf.
Trafalgar is hoping that London's desire to remain competitive will help Millennium Tower win approval, despite the criticism it is bound to attract. "If the market needs aren't met," says Trafalgar Managing Director Alan Winter, "people will go somewhere else." It's looking likely that London will go a long way toward satisfying those needs.